Lawyer for Predatory D.C. Firm Fined by FTC

May 19, 2004

Capital City counsel Eric Sanne to exit collection business and pay $20,000

By Tim Meredith MortgageDaily.com

The Federal Trade Commission has fined the legal counsel of a mortgage company for his roll in collecting payments on loans the FTC considers predatory. In addition to the fine, the attorney has been booted from the debt collection business.

The former general counsel of Capital City Mortgage Corporation, a Washington, D.C.-area mortgage lender, settled the FTCs charges that his actions violated federal law. The consent decree against Eric J. Sanne permanently bars him from participating in any debt-collection business and orders him to pay $20,000. The consent decree is dated May 6, 2004.

Capitol City was one of the original poster children for those outraged about predatory or abusive lending practices. It extended credit to consumers, small businesses and churches in Washington, D.C., Maryland and Virginia. The Commission's complaint alleges that Capital City deceived borrowers -- many of whom were minority and/or elderly persons living on fixed or low incomes -- about the terms and payment of their loans. The complaint also alleges that these practices caused many borrowers to default on their loans and caused some of them to lose their homes. As Capital City's in-house general counsel, Mr. Sanne allegedly played an important role in this behavior. Consequently, the complaint alleges that he violated the Fair Debt Collection Practices Act and the Federal Trade Commission Act by engaging in illegal debt collection practices.

Sanne was accused of violating the following sections of the Fair Debt Collections Practices Act (FD.C.PA):

He sent debt collection letters that identified him as an "attorney" or as "General Counsel," but did not identify him as a Capitol City employee (violates Section 807 of the FD.C.PA)

He made false and misleading representations to debtors (violates Section 807 of the FD.C.PA)

He engaged in unfair or unconscionable debt collection practices (violates Section 808 of the FD.C.PA)

Sanne apparently thought it would be worth his while to pay $20,000 and agree to stay away from the collections business rather than fight the FTC charges any longer.

Capitol City first came to the attention of authorities in the district of Columbia and at the FTC back in 1997 and 1998. It engaged in unseemly transactions with unsophisticated borrowers (often elderly churchgoers) that resulted in a lot of people signing up for interest only balloon mortgage loans with interest rates above 20%. Many of those borrowers defaulted and lost their homes. Capitol Cities was accused of targeting its loan business at elderly persons living on fixed or low incomes in and around Washington, D.C. According to the FTC, Capitol City:

Often made loans to people regardless of whether the borrower had the ability to repay

Routinely misrepresented material facts, including:

The loan term

The default terms

Whether the loan amortized or was a balloon loan with interest-only payments

The interest rate

The monthly payment

That borrowers would have access to account records

That borrowers would receive annual escrow account reports

Refused to accept reinstatement payments or payoff payments after the borrower defaulted so they could keep the property and sell it themselves

Routinely provided inaccurate Truth in Lending disclosures
All of this took place before the Federal government enacted HOEPA and before any state enacted a predatory loan act. Because it took place in and around the District of Columbia, it became one of the consumer activists' leading examples for why we needed laws to protect consumers against predatory lenders.

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Tim Meredith is a founding partner at the law firm of Hudson Cook, LLP, which maintains a national consumer financial services practice and advises industry clients on multi-state and federal regulatory issues. Tim is also the publisher of BasisPoints, a monthly update on how to comply with laws affecting the mortgage industry.